Ignore Car Insurance Marketing Pitches

by Kevin on March 4, 2009

In the past, during good economic times, you would hear car insurance commercials that pitched the benefit of having a personal relationship with your insurance agent. State Farm used this heavily. Essentially they were admitting you might pay a couple of bucks more for that benefit, but because of the agent it was well worth it.

Now with the economy in a massive slump and a lot of people standing in unemployment lines their tunes seemed to have changed. They want to focus more on how much money you can save by switching to them over one of their competitors.

You hear things like “On average, new customers saved $305 per year by switching to…”

At the end of the day both of these styles — pitching the agent and pitching the lower cost — are marketing ploys. And you should ignore both of them.

Why You Should Ignore the Car Insurance Pitch

Claiming that having an agent is a huge benefit doesn’t fly these days. But even if we were in good economic times you should still ignore it. Sure having someone who knows your family inside and out and can provide the right products for you is great. Yet having an agent is like having a constant companion from the company, always ready to sell you that next product. As the agent develops a rapport with you they can then start to ask questions like, “Have you thought about getting an annuity to protect your income?” We won’t go into the depths of annuities here today, but let me just say that generally they are extremely expensive products for you to own.

That’s the idea. Develop the relationship, then sell more products whether it be additional riders on your insurance policy (car rental coverage, increased coverage amounts) or separate products the company sells (annuities and investment accounts).

The Switching and Saving Ploy

I’ve got to give credit to one of my close friends for this reminder. We went on a trip this weekend and this somehow popped into the conversation.

You’ve seen the commercials from State Farm and Allstate about how drivers that switched to their company saved a lot of money. End of story. They want you to think that everyone who switches saves money. Because they do save money.

But here’s the kicker. Everyone who switches insurance companies and takes their business from one firm to the next… well …they switched because they saved money.

There’s a small difference there. Those customers that switched firms switched because they saved money by doing so. The customers that wouldn’t save money by switching most likely did not switch. It isn’t that every person that called the firm to inquire about a new policy was told they would save money, but that’s what they want you to think. Instead it is just that people who would save money are a lot more likely to switch than those that wouldn’t save money (or it would cost them money).

It’s a very subtle difference that the insurance firms don’t want you to pick up on. In reality they just want more people calling more agents in an effort to drum up more business. And that’s fine. I recommend you shop around for car insurance. There is little need for company loyalty these days especially if it can save you hundreds of dollars per year (which you should then give a name and save properly). Personally speaking I saved $400+ each year when I switched from Allstate to Geico after we got married. But that’s just me and you might not save money.

Anyone out there switched companies recently? How much did you save? Leave a comment and get the discussion rolling.

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Finance Nerd March 4, 2009 at 10:25 am

The benefit of an agent is not that they know your situation inside and out, it is that they are more likely to have your back if the insurance company denies your claim, or tries to lowball you. At least that is a common argument, but I have no idea whether it is true.

For example, if you use GEICO and have a questionable claim, you don’t really know anyone who you can ask to make an exception, or give you a break.

But, if you have an agent, he may value your business enough that he will go to bat for you with the carrier.

According to this argument, cutting out the middleman may be cheaper up front, but may cost you more if you ever have a claim.

P.S. I agree with you on the annuities, but that is a whole separate topic!

Jon Smith March 4, 2009 at 3:45 pm

I haven’t had an agent in about 6 years. I buy online, and I’ve always had a good experience with the insurance company. I know this may be an exception, but so far, it’s worked out.

We recently switched my wife’s car to my policy and saved a good bit. This was probably more to the fact that both cars were on one policy, but either way, we saved.

Kevin March 5, 2009 at 9:21 pm

@Finance Nerd: Having worked in the car rental business, I disagree. I’ve found agents to be unable to do much with the claims center that a polite speaking customer would not be able to accomplish.

Additionally, agents won’t be able to help you if the wreck doesn’t go on your insurance (isn’t your fault). You’ll be dealing with the other insurance firm’s claim center. (Although your insurance company might persuade them to speed up the process, I don’t think an agent is necessary for this).

My two cents.

@Jon: Are you buying online from one firm or just the lowest price? Have you needed to use your insurance in the past 6 years? We have Geico and are happy, and that was an online then phone conversation to get coverage.

Jon Smith March 6, 2009 at 7:23 am

@Kevin: We buy online from Progressive. We did the same, online then a phone conversation. We’ve had to use our insurance 3 times in 6 years, and all 3 times we had a great experience.

I will say that I work for a company that makes software for the insurance industry. We have large claims departments and small agencies using our software. And in my experience from visiting those claims organizations, you are right. There’s not much an agent can do that you can’t do yourself.

Holly March 8, 2009 at 10:44 am

We had auto and home hazard insurance w/USAA (military). Every one of my husband’s family members would laugh when I would say that I would like to shop around to see about getting a lower rate for my auto insurance. Well, after 14 years, guess what?! I was overpaying by over $50/month! I switched to AIG (I know, YUCK, right?)and saved $600+ in one year. I haven’t had to use my coverage yet. The rate has stayed the same when it was time for the renewal.

Kevin March 14, 2009 at 4:27 pm

@Jon: Glad to get additional word from “an insider”. We ran a rate quote from Progressive and it beat our current policy. I’m going to call and see if our current company can beat the price, if not, we are moving.

@Holly: The only problem with switching to a company like AIG is I want to have insurance from a firm that I know is going to be around. I suppose if the government is going to end up owning them that might be a safe bet, but you don’t know what changes might be made.

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